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Employment in New Zealand

New Zealand employment law appears complex and confusing when looking from an outside view although in some ways there are many similarities to other countries.  There are specific regulations on employment contracts, leave and pension contributions that must be understood fully.  For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in New Zealand.

Key points on employment in New Zealand

There are several key areas to be aware of within New Zealand’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department.  These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the New Zealand laws and rules for both New Zealand employees as well as foreign nationals.

New Zealand has traditionally had a workforce skilled in construction and production but there has been a long-standing shift towards employment in the services sector. A state-operated social welfare system provides benefits during sickness, unemployment, disability and retirement and is funded by general taxation.

  1. Contracts

    Every employee in New Zealand must have a written employment agreement that is agreed upon and signed by an employee before they start work. Employment agreements come in a variety of shapes and sizes depending on the job description, but there are certain mandatory clauses that every employment agreement must contain by law.

    Under the Act, there are two types of employment agreements that cover all employees, regardless of profession or industry. These are individual employment agreements and collective agreements.

    The official site for Employment Law in New Zealand is http://www.dol.govt.nz/

  2. Trial & Probation

    In New Zealand ‘trial’ is distinguished from ‘probation’ and follow different rules. In either case it must be clearly specified in an employment contract and agreed upon by both parties.

    Trial

    An employer may employ someone on a trial period of up to 90 calendar days, but only if it is the first time you have been employed by this employer and by mutual agreement.

    Probation

    Probation is defined as the beginning of someone’s employment, where “the employee can show what they can do and the employer can assess them for suitability for permanent employment”.  A maximum length does not appear to be specified at law and instead viewed as being long enough for the employee to demonstrate their suitability for the job.

    It is unclear whether an employment agreement can have both a trial and probation period, or only have one or the other, but the implication is that it should have one or the other.

  3. Termination

    Notice Period

    Notice periods are not defined at law and instead should be ‘reasonable’. Generally a notice period should be specified in the employment contract and agreed upon by both parties. The notice period can be different for the employment period and the trial period. According to the NZ Consumer Affairs Bureau: “most employment agreements used by an employer may include a four weeks’ notice of dismissal clause in most of their employment agreements, but only two weeks’ notice for someone employed on a trial period“.

    Procedure

    In a trial period, an employer may terminate without needing a reason, and the employee cannot file for unfair dismissal on personal grounds, e.g. unless it is for something such as unlawful discrimination based on gender or race.

    During the probation period, the employer must follow a clear disciplinary or dismissal procedure. Also the employer cannot terminate without reason at the end of the probation period. Employees on probation have the full rights of unfair dismissal claims. Likewise, full employees may not be fired without clear reason and fair procedure.

    Severance Pay

    As with the above there is no statutorily defined severance or redundancy pay scheme in New Zealand. Therefore employees are only entitled to severance pay or redundancy payment if it stipulated in the employment agreement.

  4. Leave

    Annual Leave

    Legally, you can take four weeks paid annual leave after you have worked for your employer continuously for one year. For example if you work five hours a week, at the end of the year you can take four weeks’ worth of annual leave, equalling 20 hours.

    Parental Leave

    There are four types of parental leave:

    1. Maternity leave for female employees, of up to 14 weeks, if they have worked for the same employer for the last six or twelve months.
    2. Special leave of up to 10 days, for pregnant employees for pregnancy related things such as medical appointments and antenatal classes
    3. Partner’s or paternity leave of up to two weeks, for the mothers partner when the baby is born (or a child aged under six years is jointly adopted), if they are eligible
    4. Extended leave of up to 52 weeks (minus any maternity leave or extended partner’s leave taken) which can be shared by both parents, if they are both eligible

    Sick Leave

    Employees are eligible for five days’ sick leave once they have worked continuously for their employer for six months. Casual worker are eligible for the same amount of sick leave if they’ve been ‘working regularly’ for six months.

    Employees are entitled to accrue up to a maximum of 20 days sick leave in total, by carrying over unused sick leave from year to year.

    Bereavement Leave

    An employee who has worked at least six months is entitled to bereavement leave. The length of time varies on agreement but generally if the person who has died is an immediate family member then the employee usually would take three days bereavement leave. 

  5. Pension

    You’re required to contribute to your employee’s “KiwiSaver” account or a complying fund at 3% of their gross salary or wage. A complying superannuation fund is a section within a registered superannuation scheme that has been approved by the Financial Markets Authority as having met certain criteria similar to KiwiSaver.

    KiwiSaver employer contributions need to be paid with your PAYE while contributions you make to your employees’ complying funds still need to be paid directly to the applicable scheme.

Outsourcing Employment Through a GEO Employer of Record Service

Companies entering New Zealand can make a decision whether to use their own resources or to use a Global Employment Organization to handle employment and payroll responsibilities.  A GEO solution is particularly beneficial when a company is looking to setup an office quickly with a manageable cost. The complexity of employment regulations in New Zealand makes the use of a GEO advisable to ensure full compliance with employment laws, including the drafting of local employment contracts for workers.

The company that is expanding into New Zealand contracts with the GEO to employ and payroll their staff on their behalf.  The GEO then assumes the legal responsibility for these employees, sponsoring them on work permits if necessary, complying with local employment law and running their monthly payroll.  This is especially useful to fulfill all of the specific withholding requirements for pensions and benefits, as well as documenting termination, probation periods and leave requests.

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